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Facts of the Case

M/s. Arhaan Ferrous and Non-Ferrous Solutions Pvt. Ltd. and its vehicle-owner co-petitioners, engaged in the iron scrap trade, had their goods and conveyances detained on 12.06.2023 at Auto Nagar, Vijayawada, while transporting scrap covered by invoices from the seller, M/s K.S. Enterprises, to M/s Radha Smelters Private Limited in Telangana. On enquiry, the Joint Commissioner (ST), Kurnool found the seller was not doing business at its registered address and was possibly non-existent, leading the department to suspend the seller's GST registration and issue confiscation notices in Form GST MOV-10 under Section 130 of the CGST/APGST Act against the seller — while detaining the petitioners' goods and vehicles without separately proceeding against them.

Issues Involved

  1. Whether goods and conveyances belonging to a bona fide purchaser-in-transit can be subjected to confiscation proceedings under Section 130 initiated against the (dubious) seller, without independent proceedings against the purchaser under Section 129.
  2. Whether the power to detain under Section 129 can be converted into, or bypassed in favour of, confiscation proceedings under Section 130.
  3. What burden lies on the purchaser to establish the bona fides of the transaction with a seller whose credentials are under a cloud.

Petitioner's Arguments

  • Petitioners argued they were bona fide purchasers who verified the seller's GST registration on the official portal, purchased goods against valid invoice and e-way bill, and had no role in any fraud by the seller.
  • It was submitted that the department, having doubted only the seller's credentials, ought to have proceeded against the petitioners (if at all) under Section 129, and that using Section 130 confiscation proceedings meant for the seller to trap the petitioners' goods was illegal.
  • Reliance was placed on Synergy Fertichem Pvt Ltd (Gujarat HC) and Rajeev Traders (Karnataka HC, Dharwad) distinguishing Sections 129 and 130 as independent, mutually exclusive provisions.

Respondent's Arguments

  • The Government Pleader submitted that since the seller's very existence at the declared address was doubtful and its registration suspended, confiscation proceedings under Section 130 were rightly initiated against the seller, and the burden lay on the petitioners to prove the genuineness of their purchase.
  • It was argued that the petitioners could participate in the enquiry against the seller to establish their bona fides, since no separate proceedings against them were mandatory before confiscating goods linked to a fictitious seller.

Court Order / Findings

  • Relying on the distinction drawn in Rajeev Traders and Synergy Fertichem between Section 129 (detention in transit) and Section 130 (confiscation), the Court held that the two provisions are independent and mutually exclusive, and the power to detain cannot be converted into a proceeding for confiscation, or vice versa.
  • The Court held that the respondent could not confiscate the petitioners' goods merely because they purchased from a seller of doubtful credentials, without initiating independent proceedings against the petitioners under Section 129, though the department remained free to proceed against the seller under Section 130.
  • The writ petitions were disposed of granting liberty to the department to initiate fresh proceedings against the petitioners under Section 129 within two weeks, with the detained goods released on the petitioners' depositing 25% of their value and executing a bond for the balance, and the vehicles released on security bonds.

Important Clarification

  • Sections 129 and 130 of the CGST/APGST Act operate independently: the power to detain goods in transit under Section 129 cannot be converted into, or substituted by, confiscation proceedings under Section 130 initiated against a different party (the seller), and vice versa.
  • A bona fide purchaser-in-transit who verified the seller's GST registration and possesses valid invoice and e-way bill documentation cannot be visited with confiscation consequences meant for a seller of doubtful credentials, though the purchaser may still be required to establish the genuineness of the specific transaction in independent Section 129 proceedings.

Sections Involved

  • Section 129, CGST/APGST Act, 2017 – governs detention, seizure and release of goods and conveyances in transit.
  • Section 130, CGST/APGST Act, 2017 – governs confiscation of goods or conveyances and levy of tax, penalty and fine.
  • Section 68, CGST/APGST Act, 2017 and Rule 138A, CGST/APGST Rules, 2017 – prescribe documents to be carried during movement of goods.

Decision – In Favour of

The decision is disposed of with directions, in part in favour of the petitioners: the confiscation proceedings under Section 130 against their goods (initiated on the strength of the seller's dubious credentials) were held impermissible, but the department retained liberty to independently proceed against the petitioners under Section 129, with goods and vehicles released only on deposit and bond pending that enquiry.

Case Details

Court: High Court of Andhra Pradesh at Amaravati
Case No.: WP Nos. 15481, 15482, 15486 & 15487/2023
CNR / Citation: Not available in judgment text
Coram: Hon'ble Sri Justice U. Durga Prasad Rao and Hon'ble Smt. Justice Venkata Jyothirmai Pratapa
Date of Order: 03 August 2023

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